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Higher Education, in the sense of institutions that deliver content for credit, then confer degrees to students fortunate enough to persevere for the length of the program, is in the midst of foundational, forced change, that will result in a new normal that will be unrecognizable for large portions of the industry—and most institutions will find themselves in the new reality by default rather than by design.
Even before the novel coronavirus pandemic, American higher education was in the eighth consecutive year of enrollment declines and 2020 will not only be the ninth year, but will manifest the greatest year over year decline of the entire contraction. If the last decade was death by a thousand paper cuts, COVID-19 is a lethal assassin of the status quo. The challenge for colleges and universities, which applies to organizations in any industry, is that it’s very difficult to manage a crisis and think transformatively at the same time. Institutions of higher education, however, are further challenged by cultures and leadership that are far more effective at sustaining the status quo than thinking audaciously about the future.
Unlike virtually any other sector of the economy, colleges and universities were able to operate for decades with anachronistic, expensive, and institution-centric models that amazingly, until recently, also managed to avoid market forces! The last decade marked the beginning of the end of that dynamic with downsizing, mergers, and nearly 1,300 closures, so the industry was already in decline and many institutions were in a severely weakened state even before the pandemic. A combination of unfavorable demographics, cost, debt, new alternatives, and an increasingly negative societal view of higher education was already substantially decreasing demand while also making college enrollment more discretionary among the shrinking potential pool of students. Despite the “pre-crisis crisis,” colleges and universities were remarkably complacent, if not in outright denial about the structural challenges of the last ten years. Although few institutions are likely in denial about the severity of the COVID-19 crisis per se, almost all are in a very heads-down, transactional mode, unable to see the current predicament as an opportunity for reinvention. While that is not atypical of organizations in crisis, the pandemic ironically presents the greatest opportunity in modern times for colleges and universities to think very differently about how they operate and bring value to constituents.
There are currently about 5,800 institutions in the U.S. that are eligible for federal financial aid (there used to be almost 8,000). About 15% of them are financially sound enough, exclusive enough, and/or have enough political patronage to continue to operate very similarly to how they have in the past—at least for the foreseeable future. As Scott Galloway, Silicon Valley entrepreneur and marketing professor at NYU describes the situation in a recent New York Magazine interview, “The better universities are fine in the short term because they just fill spots from the waiting lists. The kid who’s going to Boston College will get into MIT. But if that snakes down the supply chain, and you start getting to universities that don’t have waiting lists, those are the ones that get hit.” The catastrophic combination of factors created by COVID-19 will reduce applications, and thus selectivity at the top of the higher ed food chain and will dramatically reduce selectivity in the middle. Those in the bottom third, or so, will basically implode. As an example, Pepperdine has dipped into its wait-listed students for regular admission well before their deposit deadline — it’s the first time in institutional memory they’ve done that — and then did it again. And that was more than four months before the fall semester! As Galloway further notes, “It will be like department stores in 2018. Everyone will recognize they’re going out of business, but it will take longer than people think.” Some will hang on for a while as “zombie” colleges, technically open, but no longer viable concerns.
On the other extreme, the rich and powerful will get more rich and powerful. As we’ve seen with retail and banking, for example, those with scale, money, reputation and political clout (maybe 50 to 100 institutions) will get bigger and more dominant at the expense of everybody else. As few as a dozen will be the “Amazons” of higher ed. This group will include both the scions of higher education like Stanford and Harvard, with bold upstarts like Western Governors University and Southern New Hampshire, some unique outliers like Grand Canyon, and a few flagship publics as well. What most Americans don’t realize is that the richest institutions in the country also serve the richest students, perpetuating a higher education caste system that has been almost impenetrable and will remain so after COVID-19. According to a 2017 study by the National Bureau for Economic Research, if students’ parents are in the top 1 percent of the income distribution, they’re 77 times (no, that’s not a misprint) more likely to end up in the Ivy League than they are if their parents are in the bottom 20 percent. Despite massive endowments and yearly eight and nine figure revenue surpluses, these institutions simply do not admit a meaningful number of needy students and that may get even worse after the pandemic subsides.
Outside of this caste system, the reality is that much will change whether institutions play along or not. To be clear, this is not speculation. It reflects changes that were already in play, but that have been catalyzed like gasoline on a fire. What can we be confident about?
In the coming years, higher education will:
- Be smaller, with fewer institutions overall
- Be dominated by a rich and powerful “cabal” at the top
- Be redefined by blockbuster partnerships with industry
- Include non-accredited post-secondary options
- Be much more discretionary for a vast majority of Americans
- Operate with less public funding
- Be less diverse, with fewer students of color, poor students and international students (African American enrollment declined 13% from 2014 to 2019)
- Manage finance with actual P&L rather than expense budgets (and move to more variable vs. fixed costs)
- Be less bureaucratic
- Be less dependent on tuition
- Be staffed by even more contingent workers
- Be market driven and move to more “small bite” programs rather than formal degrees
- Have less face to face interaction, even on residential campuses for both instruction and services
- Be less calendar-focused, with more flexible, multiple length academic terms
- Be brutally competitive in a retail context
- Be much more open to innovation for those institutions that survive
- Be customer driven (and dependent on a compelling value proposition)
- Be in a constant state of flux
The simple reality on the consumer side is that what used to be a compelling ROI for college degrees is now only marginally positive, and for a substantial number of students with crippling debt, actually negative. Families in the 1% will still broadly subscribe to a residential college experience, with the end credential being a degree. Everyone else will look for alternatives that make much more sense in terms of time, money, and a path to employment.
On the other hand, although the outlook for much of traditional higher education is gloomy, the future for post-secondary education is quite bright. And the future for institutions that have the courage and chutzpa to make really bold bets on a fundamentally different future will not only survive, but thrive. In the process, we will see more disruption and innovation in higher education than ever before in its long and impressive history. The closest industry example may be banking, which has moved to a technology driven, hybrid business model in which the majority of transactions are now initiated by customers using various forms of networked technology, with a modest brick and mortar presence for some services, customer support, and as a means of maintaining brand loyalty.
As noted previously, the rich and powerful of higher education will broadly get richer and more powerful, and will benefit from game changing industry partnerships, robust revenue streams and access to capital. The elites will benefit from exclusivity and legacy reputations while the “upstarts” will benefit from scale, access, and affordability.
Within the vast remainder of colleges and universities, institutions that choose to see themselves as leaders in the move toward a redefined future, there will be an incredible opportunity to create an experience that is student-centric, entrepreneurial, flexible, driven by compelling partnerships and learning experiences, and based on the needs of customers and employers, rather than on the needs of the institution. And the most successful institutions will be those that can solve the critical challenge of creating a highly engaging, social, and “human” environment in the midst of less face to face interaction (even “residential” campuses will deliver more instruction and services online). As a recent article in the Harvard Business Review noted, “digital transformation is now risk-mitigation.” One other likely change for enlightened colleges will be a move from the “one and done” model of enrolling, completing a degree, and disappearing, to a series of educational experiences that keep graduates connected to their schools through short-term, just-in-time programs over a lifetime. These programs are likely to be affiliated with industry and fall under “demand driven education,” which will, for enlightened colleges, finally bridge the higher education-industry divide.
Although, relatively speaking, those that thrive outside the “cabal at the top” will be niche players, the massive contraction in institutions overall will eventually help to realign supply and demand, creating space for small to midsize institutions who compete on their value proposition and redefined financial models. Three to five years from now it will be basically impossible for mediocre colleges and universities, public or private, to compete. The majority of the student market will pay for remote/online learning or local campus based/hybrid options, but only if it is a high-quality experience and only if it is affordable. They will no longer pay exorbitant prices for mediocrity. Of the pool of institutions that operate today with an exclusive admissions model, i.e., they accept fewer students than apply, roughly the bottom third will effectively become open admissions models and even that will not meet admissions targets for all of them. The middle third will become much less exclusive, and the top third will still turn away far more students than they accept, but their typical student profile will shift from creme de la creme to creme. Only the top five percent or so of exclusive institutions will be able to maintain a similar student profile to what they had in the past, but even they will need to accept students they wouldn’t have before.
Lastly, as simple as this is, regardless of sector, institutions that find a way to offer shorter, cheaper, high quality programs and credentials that lead directly to employment opportunities, will be in high demand over the next several years as we work our way out of an economic depression. The double whammy facing higher education is not just the logistical nightmare of COVID-19 and the sudden crash in value of the educational experience for students; the economic calamity will put any kind of traditional higher education out of reach for tens of millions of families for the foreseeable future. Access will actually increase, but not for traditional, residential higher education and degree programs, as many students shift to more affordable, mass-market options.